Types of securities on the stock market

The stock market represents a complex system in which various types of securities play an important role. Each instrument serves its function: attracting capital, preserving savings, generating income. Errors in asset selection can lead to significant financial losses, so it is important to understand their specifics.

Most novice investors are convinced that the investment market is exclusively about stocks. In reality, there are many financial instruments. They differ in risk level, profitability, and method of earning. Companies attract capital through the issuance of securities, and investors use them for portfolio diversification.

Which instruments are available on the exchange, how they differ, and how to choose them correctly will be discussed in the article.

Categories of Securities and Their Key Features

Each type of security in the stock market has its characteristics, rights, and obligations for the owner. Key categories include:

Equity Securities

These instruments confirm the right to a share in the business. The main representative is stocks. The owner of such securities becomes a co-owner of the business and receives the right to a portion of the income and the opportunity to participate in the company’s management.

Stocks can be:

• common – provide the right to receive dividends and participate in shareholder meetings;
• preferred – provide a fixed income and do not allow participation in management.

Investing in stocks can bring significant profits. They are associated with high risks, and the value of their securities depends on the company’s financial performance, economic situation, and other factors.

Debt Securities

Bonds are a classic example of debt instruments. By purchasing such a security, an investor provides funds to the issuer as a loan and, in return, receives an obligation to repay them with interest. These securities have lower risk compared to stocks but also yield lower income.

Bonds are divided into:

• government – issued by the government to finance budget deficits;
• corporate – issued by companies to raise funds;
• municipal – issued by local authorities.

Derivative Financial Instruments

These include: futures, options, and swaps. Their value depends on the underlying asset, which can be represented by stocks, bonds, commodities, or currencies.

Derivative instruments are used for risk hedging or speculation. They are complex to manage and are suitable for experienced investors.

Hybrid Securities

These instruments combine the characteristics of equity and debt assets. An example is convertible bonds, which can be exchanged for the issuer’s shares.

They also include preferred stocks, which have features of both stocks and bonds.

Securities of the stock market are divided by type and functional purpose. For example, some instruments are used for long-term capital accumulation, while others are used for speculative trading.

Stocks and Bonds: What’s the Difference

The main instruments of the market remain stocks and bonds, which operate on different principles.

Stocks provide the owner with a share in the company, the opportunity to receive dividends, and participate in management. Their price depends on the issuer’s financial indicators, market trends, and news.

Bonds are debt obligations, where upon purchase, the investor provides a loan to the issuer at a pre-agreed interest rate. They are considered more stable and predictable than stocks.

The choice between these instruments depends on the goals: stocks are suitable for capital growth, while bonds are for stable income. Experienced investors build portfolios by combining different types of securities in the stock market.

How Securities Value is Evaluated

The market value of assets is determined by a number of factors that affect the capital price in the market. Key criteria include:

1. Issuer’s financial indicators – profit, revenue, assets, debts.
2. Macroeconomic situation – inflation, interest rates, GDP.
3. Demand and supply – investor activity, asset liquidity.

Valuation Methods

Fundamental Analysis

The approach is based on studying the company’s financial statements. Key indicators include:

• p/e (Price-to-Earnings) – the ratio of stock price to company earnings;
• p/b (Price-to-Book) – company value relative to its book value;
• roe (Return on Equity) – return on equity.

This analysis helps determine the true value of the security and compare it with the market price.

Technical Analysis

A method based on studying price charts and trading volumes. Tools used include:

• chart patterns – “Head and Shoulders,” “Double Bottom”;
• indicators – moving averages, RSI, MACD.

The analysis helps predict price movements over short time frames.

Dividend Approach

Investors focused on stable income evaluate securities based on dividend yield. The key indicator is Dividend Yield, calculated as the ratio of annual dividends to the stock price.

An error in assessing value can lead to inflated expectations of returns or missing out on promising assets. Proper use of analysis methods allows for informed decision-making.

Who Issues and Sells Securities of Different Types on the Stock Market

The issuance of securities is the process of issuing new financial instruments. Issuers can be governmental, corporate, or municipal. They issue securities to attract investments.

Brokers act as intermediaries, helping investors acquire assets. Choosing a reliable financial agent is an important step in capital management.

Conclusion

The stock market offers a variety of investment instruments. The main thing is to understand which types of securities in the stock market align with financial goals. Stocks provide an opportunity to earn from growth, bonds ensure stable income, derivative instruments are suitable for speculation. Before investing, it is important to conduct analysis, choose a reliable broker, consider risk levels, and investment horizons. A thoughtful approach allows for effective asset management and minimizes losses.